Two excellent research pieces have been published recently on two popular issues: why are real estate prices so ridiculously high? And has FDI something to do with it?

The first – Public perceptions of foreign and Chinese real estate investment: Intercultural relations in Global Sydney – is from the University of Bonn and looks at the increase in residential real estate prices in Sydney, a city ranked as one “of the world’s least affordable real estate markets” by US-based think-tank Demographia. Given that the price hikes coincided with significant Chinese house-buying activity, a survey of Sydney-siders regarding perceptions over the reasons for a lack of affordable housing was unsurprising. Foreign investors came first with 64.4%, with low interest rates (37.4%) and urban planning (35.8%) at a distant second and third.


This is where the second research piece – No price like home: Global house prices, 1870-2012, published by Australian Geographer – comes in. It has looked at house prices of 14 advanced economies over a 140-year period and found house prices stayed more or less constant until the 1960s, then suddenly began to rise sharply. The explanation: the availability or the accessibility of land.

Thanks to rail networks and cars, the distance of realistically reachable areas to live in expanded significantly. But as we know from our daily commute, this is not expandable indefinitely (just think of travel times and traffic jams). So increasingly the effect is waning, while at the same time, zoning regulations and restrictions have limited the amount of usable land. And there we are: back in the old supply and demand game.

So how does that relate to the initial question? Chinese investors in Sydney (or all foreign investors everywhere) have certainly had an impact upon the demand side and might cause shortfalls in supply. However this is, at best, only part of the truth. Macroeconomic effects (for example, artificially low interest rates), building regulations and a lack of infrastructure have just as much to do with it.

Foreign investors should look at these things not only with regard to real estate projects. In times of protectionism and nationalism, in a well-run country with good governance and infrastructure, it is less likely that foreign investors will be accused of being guilty of all sorts of things by a population that feels left behind. (While technically this is down to the local political and economic elites, foreigners always tend to make better targets.) Which is why we would all be well advised to watch the real estate game very closely indeed. 

Martin G Kaspar is head of business development at a German mittelstand company within the automotive industry and a PhD candidate at Durham University. E-mail: